No addition u/s 69 for advances received against booking of flats by treating it as unexplained expenditure

Anil Kumar Paik Vs DCIT (ITAT Kolkata)

Conclusion: Advances received against booking of flats were not an unexplained investment under section 69 as there was no mechanism under the Act to make the addition for the excess of fair market value over the purchase consideration paid for purchase of immovable property before 01/04/2017 and assessee had duly disclosed the transactions as consideration had been paid through banking channel thus, no addition to be made.

Held: Assessee-individual was carrying out various types of business including property development, liquor shop, medicine shop and rental income. The return was selected for scrutiny by issuance of notice u/s 143(2) and 142(1). AO noticed as per the ITS details, assessee had purchased a flat for a consideration of Rs. 44,24,850/-but in the reply filed by assessee on 28/09/2015, it was submitted that during Financial Year 2013-14 no new property had been purchased. Thus, AO made an addition for unexplained investment of Rs.48,00,000/-. It was held that assessee during the course of assessment proceedings stated to have not made any new investment in purchase of immovable property during the year as no such investment was appearing in any balance sheet of the sole proprietorship concern owned by him. However, details of the investment in the said property had been filed and the purchase consideration had been paid out of the bank account duly disclosed in the income tax return. However, as per the stamp valuation authority, the value of the said property for the purpose of stamp valuation was adopted at Rs.44,12,850/-. On the other hand, purchase consideration paid by assessee was Rs.7,00,000/- and the same was duly appearing in the purchase deed. Firstly the said transaction was not an undisclosed transaction as it had been carried out through a disclosed bank account. Further, the provisions for making the addition on the basis of difference of stamp duty valuation/fair market value of such property which exceeds the actual consideration paid had been brought into the statute in Section 56(2)(x)(b) by the Finance Act No. 2017, effective from 01/04/2017. Since the instant appeal pertained to Assessment Year 2014-15, there was no mechanism under the Act to make the addition for the excess of fair market value over the purchase consideration paid for purchase of immovable property. Thus, since the assessee had duly disclosed the transactions as consideration had been paid through banking channel, no addition was called for on account of unexplained investment u/s 69 at Rs.44,12,850/-.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

The present appeal is directed at the instance of the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter the “ld. CIT(A)”) dt. 03/03/2023, passed u/s 250 of the Income Tax Act, 1961 (“the Act”) for the Assessment Year 2014-15.

2. The assessee has raised the following grounds of appeal:-

“1. FOR THAT none of the conditions precedent existed and/or have been complied with and/or fulfilled by the Ld. the Ld. Commissioner of Income Tax (Appeals)-N.FAC in passing the impugned order ex-parte in contravention to the prescription contained in the provisions of s. 250(6) of the Income Tax Act, 1961 and the alleged appellate order dated 03-03-2023 passed thereunder is therefore ah initio void, ultra vires and null in law.

2. FOR THAT on a true and proper interpretation of the scope and ambit of the provisions of s. 68 of the Income Tax Act, 1961, the Ld. Commissioner of Income Tax (Appeals)-N.FAC. was absolutely in error in impliedly upholding the action of the Ld. Deputy Commissioner of Income Tax, Circle 8(1), Kolkata without proving any infringement thereof and the purported conclusion reached on that behalf is entirely baseless, unlawful, and invalid.

3. FOR THAT the spurious action of the Ld. Commissioner of Income Tax (Appeals)-N.F.A.C. in upholding the addition of Rs. 53,29,150/- resorted to by the Ld. Deputy Commissioner of Income Tax, Circle 8(1). Kolkata without any proper application of mind on the rejoinder of the appellant is absolutely arbitrary, unreasonable, and perverse.

4. FOR THAT the specious approach of the Ld. Commissioner of Income Tax (Appeals)-N.F.A.C. of misreading evidence, considering improper facts, failing to consider proper position in law and thus coming to an erroneous finding in impliedly sustaining the addition of Rs. 53.29,150/- made by the Ld. Deputy Commissioner of Income Tax. Circle 8(1). Kolkata on the manifestly wrong appreciation of facts based on considerations not relevant to the issue i wholly illegal, illegitimate, and infirm in law.

5. FOR THAT the Ld. Commissioner of Income Tax (Appeals)-N.FA.C acted unlawfully in impliedly sustaining the purported addition of R 44,12,850/-made the Ld. Deputy Commissioner of Income Tax, Circle 8(1), Kolkata by invoking the mischief u/s. 69 of the Income Tax Act, 1961 without satisfying the parameters thereof and the adverse conclusion reached on that behalf in violation of the statutory prescription is completely unfounded, unjustified, and untenable in law.”

3. Brief fact of the case are that the assessee is an individual and is carrying out various types of business including property development, liquor shop, medicine shop and rental income. Income of Rs. 1,09,65,940/- declared in the e-return filed for Assessment Year 2014-15 on 28/03/2016. The return was selected for scrutiny through CASS followed by issuance of notice u/s 143(2) and 142(1) of the Act. Various details were called for by the Assessing Officer and the same also contained details regarding advance received against booking of flats, examination of sales turnover as per the income tax returns vis-à-vis individual transaction statement available on income-tax portal.

3.1. The ld. Assessing Officer noticed that in the financial statement, sundry creditors as on 31/03/2014 included advance of Rs. 5,95,04,920/- received by S. Paik & Co., which is a sole proprietorship concern of the assessee against the sale of flats. The ld. Assessing Officer picked up certain names from the details of parties from which advances were received and issued notice u/s 133(6) of the Act but except one, the remaining three parties did not reply and in absence of satisfaction regarding the genuineness of the transactions, the advance of Rs.48,00,000/- from three parties added to the income of the assessee.

3.2. Further the ld. Assessing Officer also observed that as per the individual transaction statement, assessee has sold various immovable properties each valuing at Rs.30,00,000/- or more. The total of such transactions amount to Rs.4,61,10,613/- and reference has been made to nine of such transactions in the assessment order and sale deeds with these parties were registered during the year under consideration. When the assessee was asked to explain the differential amount of sales, it was submitted that the transaction with all these parties are regarding sale of immovable property and the amount appearing in the Individual Transaction Statement (ITS) is the value adopted by the stamp valuation authority but the actual transactions took place in the preceding years and the sale consideration has been received in parts which has been duly offered to tax in the year of receipt as sales turnover. The assessee filed complete details about agreement to sale with each of the parties along with the figure of actual sale consideration and the year in which such sales consideration has been disclosed as sales. However, the ld. Assessing Officer was not satisfied as he found that the information given by the assessee suffers from certain flaws and after discussing in detail finally made the addition for suppressed sales at Rs. 53,29,150/-.

3.3. The ld. Assessing Officer also noticed that as per the ITS details, the assessee has purchased a flat for a consideration of Rs. 44,24,850/-but in the reply filed by the assessee on 28/09/2015, it is submitted that during Financial Year 2013-14 no new property has been purchased. Thus, the ld. Assessing Officer made an addition for unexplained investment of Rs.48,00,000/-. Accordingly after making total addition of Rs. 1,45,42,000/- income assessed at Rs.2,55,07,936/-.

4. Aggrieved, the assessee preferred appeal before the ld. CIT(A) challenging the additions made by the Assessing Officer but failed to appear on most of the dates of hearing which fall during the Covid-19 restrictions period and accordingly, ld. CIT(A) dismissed the assessee’s appeal for non-appearance.

5. Aggrieved, now the assessee is in appeal before this Tribunal.

6. The ld. Counsel for the assessee has filed written submissions at page 1 to 8 of the paper book and along with these submissions, details have also been filed regarding the conveyance deed executed by those parties which did not reply to the notice u/s 133(6) of the Act. Reference also made to receipt summary and sale deed of various customers to whom assessee sold the immovable property in the past but the sale deed were registered during the year under consideration. Assessee also filed financial statements of the sole proprietorship concern and replies filed against various notice u/s 142(1) of the Act and same are available in the paper book filed on 10/08/2021.

6.1. The crux of the arguments of the ld. Counsel for the assessee are that firstly, with regard to the addition of Rs.48,00,000/- for unexplained advance received from booking of flats, he submitted that though the parties, namely, Amalendu Barik, Debanjan Chakraborty and Indumati Panchali, did not reply to the notice u/s 133(6) of the Act but conveyance deed was executed with these parties which is duly registered with the Registering Authority alleged sum received in preceding final year(s) and the same is a genuine transactions for sale of flats and, therefore, no addition is was called for. Secondly, as regards mismatch in sales turnover as per return vis-à-vis ITS details, he submitted that all the transaction amounts appearing in the ITS statement are the value adopted by stamp valuation authority but the actual transactions of sale took place in the preceding financial years and the consideration has been received in parts which have been offered to tax in the year of receiving such advance. He was fair in admitting that the assessee was not maintaining the books of accounts in the past strictly on the mercantile system of accounting and, therefore, even when the total sale consideration was not received, the advance received were treated as sale but at a later stage, assessee has started maintaining books strictly as per mercantile system of accounting and now only when the sale transactions materializes and consideration is received then sale is booked. He also submitted that complete details of the bank transaction with each of the parties referred by the ld. Assessing Officer in para 3 of the assessment order has been filed along with the ledger account showing the details of payments received. He also submitted that Section 50C of the Act is not applicable as alleged transactions are business transactions. Lastly, as regards the unexplained investments, it is submitted that the said investment was made by the assessee through its disclosed bank account and was appearing in the personal balance sheet. Since in the sole proprietorship concern, this investment was not appearing inadvertently, it was submitted that no purchase of immovable property has been made. He stated that assessee made an investment in purchase of property for a consideration of Rs.7,00,000/- but the value adopted by the stamp valuation authority is Rs.48,12,850/-. However, since Section 56(2)(x)(b) of the Act has come into effect from 01/04/2017, there is no provision under the Act to make addition of difference in purchase consideration calculated on the basis of fair market value (FMV)/Stamp Value adopted by the Stamp Valuation Authority. The ld. Counsel for the assessee referred and relied upon various decisions which are mentioned in the written submissions placed on record.

7. The ld. D/R, on the other hand, apart from supporting the order of the Assessing Officer stated that the assessee failed to appear before the ld. CIT(A) and the ld. Assessing Officer has made detailed finding dealing with each of the issues and submissions filed by the assessee will not support its grounds. He thus prayed that the addition made by the Assessing Officer may be confirmed.

8. We have heard rival contentions, perused the records placed before us and carefully gone through the judgments referred and relied upon by the ld. Counsel for the assessee in the written submission. We observe that the assessee is carrying out various types of business activities which includes property development, liquor shop, medicine shop, pathology lab, rental income etc. and assessee has made multiple sole proprietorship concern and prepares financial statements of each of the sole proprietorship concern. So far as the year under appeal is concerned, three additions are in challenge of which two relates to the business of property development and one relates to investment in immovable property. First we will take up the addition of Rs.48,00,000/- made for unexplained advance received against booking of flats from following three parties:-

8.1. During the course of hearing, the ld. Counsel for the assessee brought to our attention that the alleged sum has not been received during the year under consideration. The alleged sum was received in preceding years as advance against the sale of immovable property. We notice that the alleged sum are appearing as opening balance in the financial statement of the assessee which has even been noted by the Assessing Officer in the assessment order. Since the alleged sum is opening balance and brought forward from the preceding year, Section 68 of the Act cannot be invoked for the alleged sum which the ld. Assessing Officer has applied for making the impugned addition. Details of conveyance deed has also been filed before us to prove that the advance received from all the above stated three parties have been adjusted against the sale consideration for sale of flats. We are thus of the considered view that the alleged sum received from three parties in earlier years is an advance for purchase of flat from assessee and is a genuine transaction and attained finality in the form of conveyance deed and, therefore, no addition is called for at Rs.48,00,000/- for unexplained advance. Thus, Ground No. 2 raised by the assessee is allowed.

9. Now we take up Ground Nos. 3 & 4 which relates to addition for supported sales amounting to Rs.52,29,150/-. We notice that the ld. Assessing Officer based on the ITS details noticed that the assessee has sold various immovable properties (in the form of residential flats) each valuing at Rs. 30,00,000/- or more and the details of the same are as follows:-

9.1. Further we notice that the assessee has filed detailed reply giving information about each and every transactions mentioned above and the crux of the submissions are that the actual transactions of sale of immovable property is at a lower amount because the sale transactions/agreement to sale has actually taken place in the preceding years but the sale deeds have been registered during the financial year 2013-14. The details filed by the assessee for each of the nine transactions referred above reads as follows:-

“SI. No. l-Transaction amount -Rs. 67,20,525/- .The above transaction relates to sale of flat at 2B, S.N. Roy Road, Kolkata-700034 to Dr. Ashoke Bandyopadhyay as per agreement dt-27/04/2003 and the amount of Rs. 17,00,000/- has been included in sales turnover in the year 2012-13 though it was registered on 27/06/2013. The value of Rs. 67,20,525/- represents fair market value. The copies of sale deed and agreement are enclosed.

SI. No. 2- Transaction amount -Rs. 57,59,250/-. The above transaction relates to sale of flat at 2A, S.N. Roy Road, Kolkata-700034 to Smt. Babita Khanna as per agreement entered into in the year 1995 and the amount of Rs. 8,68,000/- has been included in sales turnover in the year 2005-06 though it was registered on 27/06/2013. The value of Rs. 57,59,250/- represents fair market value. The copy of the sale deed is enclosed.

SI. No. 3- Transaction amount- Rs. 57,28,000/-. The above transaction relates to sale of flat at 71, Roy Bahadur Road, Kolkata-700053 to Mr. Manish Garg as per agreement dtd 20/ 12/2010 and the amount of Rs. 35,27,000/- has been included in sales turnover In the year 2012-13 Rs. 17,00,000/- and in the year 2013-14 Rs. 18,27,000/- though it was registered on 28/06/2013. The value of Rs. 57,28,000/-represents fair market value. The copies of sale deed and agreement are enclosed.

SI. No. 4- Transaction amount- Rs. 56,09,600/-. The above transaction relates to sale of flat at 71, Roy Bahadur Road, Kolkata-700053 to Mr. Bikahs Surana which is not related to Sri Anil Kr. Paik. This the sale of Land Lord’s portion. The Joint venture agreement between land lord Mr. Balai Chand Pal and Mr. Anil Kr. Paik is enclosed.

SI. No. 5- Transaction amount- Rs. 54,76,900/-. The above transaction relates to sale of flat at 71, Roy Bahadur Road Kolkata-700053 to Mr. Suraj Kr. Lakhmani and the amount of Rs. 31,83,700/- has been included in sales turnover in the year 2012-13 Rs. 9,50,000/- and in the year 2013-14 Rs. 20,33,700/- though it was registered on 19/07/2013. The value of Rs. 54,76,900/- represents fair market value. The copies of sale deed in enclosed.

SI. No. 6- Transaction amount -Rs. 48,31,538/-. The above transaction relates to sale of flat at 2B, S.N. Roy Road, Kolkata-700034 to Mr. Samir Kr. Chatterjee as per agreement dtd. 15/08/2002 and amount of Rs. 15,47,000/- has been included in sales turnover in the year 2012-13 though it was registered on 27/06/2013. The value of Rs. 48,31,538/- represents fair market value. The copies of sale deed and agreement are enclosed.

SI. No. 7- Transaction amount – Rs. 44,12,850/-. The above transaction relates to purchase of flat at 17, S.N. Roy road, Kolkata- 700038 by Mr. Anil Kr. Paik. The value of Rs. 44,12,850/- represents fair market value. The copies of purchase deed is enclosed.

SI.No. 8- Transaction amount – Rs. 38,74,800/-. The above transaction relates to sale of flat at 71, Roy Bahadur Road, Kolkata-700053 to Mr. Sukhdew Singh and the amount of Rs. 7,00,000/- has been included in sales turnover in the year 2012­13 and the balance amount including amount of Rs. 5,28,000/- lying in advance against booking of flat in the year 2013-14 to be shown in sales turnover in the year 2014-15 though it was registered on 23/09/2013. The value of R. 38,74,800/-represents fair market value. The copy of sale deed is enclosed.

SI.No. 9- Transaction amount- Rs. 36,97,150/-. The above transaction relates to sale of flat at 2A, S.N. Roy Road, Kolkata-700034 to Smt. Raj Kumari Khanna and the amount of Rs. 5,88,000/- has been included in sales turnover in the year 2005­06 though it was registered on 30/05/2013. The agreement was entered into long back. The value of Rs. 36,97,150/- represents fair market value. The copy of sale deed will be furnished shortly.”

10. Further we notice that in support of the above submissions giving details of transactions, the ld. Counsel for the assessee has also filed the receipt summary and sale deed of each of the parties connected to these transactions. We take the example of one of the transactions appearing in Serial No. 2, wherein the transaction amount is Rs.57,59,250/- as per the ITS and the date of transaction is 27/06/2013 i.e., the date of sale deed. Now from the details filed by the assessee, we observe that under the sole proprietorship concern, namely, S. Paik & Co., Flat No. 2A, situated at S.N. Roy Road, Kolkata – 700034 was sold to Smt. Babita Khanna during financial year 1996­97. Against the total sale consideration of Rs.10,00,000/-, amount of Rs.1,32,000/- was received in cash on various dates during the financial year 1995-96 and finally a cheque of Rs.8,68,000/- was received on 05/04/1996. Since the consideration for the flat was received upto the financial year 1996-97 and the sales have been disclosed in the preceding financial years, it is only the sale deed which was registered during the year under consideration and the consideration of Rs.10,00,000/- is stated in the sale deed itself at page 12 (paper book page 153). Reference has also been made for the agreement for sale executed in April, 1996. These facts, give a clear picture that the assessee had sold flats in the preceding year but they were registered in the name of the buyers through registered sale deeds during the year under consideration. Similar is the situation for all the remaining eight transaction and the assessee with complete evidence of the bank transactions, registered conveyance deeds and ledger accounts exhibiting that in the actual sale transactions with all these parties have either been offered as sales in the preceding year for the year under consideration and even in some cases, the balance amount has been received in the subsequent financial years and have been offered to tax accordingly. Since the genuineness of all the transactions have been proved beyond doubt and complete details of transactions with each of the parties has been examined by us, we notice that addition made by the ld. Assessing Officer taking the value adopted by the stamp valuation authority cannot be held to be justified as the ld. Assessing Officer had not made the relevant enquiries in accordance with the statute for examining the veracity of the transactions.

11. Further on examining the details filed by the assessee, we find that all the alleged transactions are business transactions and the immovable property in question are part of the stock-in-trade of the assessee sole proprietorship concern and cannot be considered as a capital asset. The provisions under the Act for making the addition for the difference between the fair market value/value adopted by stamp valuation authority over and above the sale consideration received are provided u/s 50C of the Act and Section 43CA of the Act. Section 50C of the Act deals with the capital asset and since the immovable property in question are stock-in-trade, therefore, Section 50C of the Act will not apply.

11.1. Now, so far as Section 43CA of the Act is concerned, the same is a special provision for full value of consideration for transfer of asset other than transfer of capital asset in other cases and thus can be applied in case of transactions of sale of immovable properties held as stock-in-trade. Section 43CA of the Act has been inserted by Finance Act, 2013 w.e.f. 01/04/2014 and, therefore, the transfer of the asset which takes place after 01/04/2013 comes under scanner of Section 43CA of the Act. As per the provision of Section 43CA(3) and 43CA(4) of the Act the fair market value/value assessable by an authority of State Government has to be adopted as on the date of agreement to sale if part of the consideration has been received through banking channel. In the instant case, we notice that the information about all the alleged transactions referred by the ld. Assessing Officer in the assessment order have been taken from ITS. The agreement to sale have been entered into between the assessee and the concern buyers in the preceding years and major part of the sale consideration has been received in the preceding years itself. The details filed by the assessee also indicates that part of the sale consideration has been received through banking channel in the preceding years itself. Therefore, since the sale transactions have mostly taken place in the past and consideration has been received as per the agreement to sale, no addition can be made for Assessment Year 2014-15 by invoking the provision of Section 43CA of the Act.

11.2. We, therefore, under the given facts and circumstances of the case are of the considered view that no addition is called for on account of alleged mismatch in the sales turnover as per the return of income vis-à-vis ITS details because the actual sale transaction for transfer of immovable property has taken place prior to 31/03/2013 and the assessee has duly offered the amount received against sale of flats in the respective year when such sum was received as part of the gross sales and thus, the addition for suppressed sales at Rs. 53,29,150/- is hereby deleted. Accordingly, Ground No. 3 & 4 raised by the assessee are allowed.

12. Last issue for our consideration is Ground No. 5 raised against alleged unexplained investment in purchase of immovable property at Rs.44,12,850/-. We notice that the assessee during the course of assessment proceedings stated to have not made any new investment in purchase of immovable property during the year as no such investment was appearing in any balance sheet of the sole proprietorship concern owned by him. However, before us details of the investment in the said property has been filed and the purchase consideration has been paid out of the bank account duly disclosed in the income tax return. The copy of the purchase deed has been placed at page 295 of the paper book as per which the Flat at 17, S.N. Roy Road, Kolkata, was purchased for a consideration of Rs.7,00,000/- and the total payment is made through banking channel. However, as per the stamp valuation authority, the value of the said property for the purpose of stamp valuation is adopted at Rs.44,12,850/-. On the other hand, purchase consideration paid by the assessee is Rs.7,00,000/- and the same is duly appearing in the purchase deed. We observe that firstly the said transaction is not an undisclosed transaction as it has been carried out through a disclosed bank account. Further we observe that, the provisions for making the addition on the basis of difference of stamp duty valuation/fair market value of such property which exceeds the actual consideration paid has been brought into the statute in Section 56(2)(x)(b) by the Finance Act No. 2017, effective from 01/04/2017. Since the instant appeal pertains to Assessment Year 2014-15, there was no mechanism under the Act to make the addition for the excess of fair market value over the purchase consideration paid for purchase of immovable property. Thus, we are inclined to hold that since the assessee has duly disclosed the transactions as consideration has been paid through banking channel, no addition was called for on account of unexplained investment u/s 69 of the Act at Rs.44,12,850/-. Thus, Ground No. 5 raised by the assessee stands allowed.

13. Remaining grounds are general in nature.

14. In the result, appeal of the assessee is allowed.

Order pronounced in the Court on 8^th November, 2023 at Kolkata.